McGraw-Hill Spinoff Could Bring Change

McGraw-Hill Companies (MHP) is an information hunter-gatherer that plans to scan fewer fields. The New York City company is set to spin off its education business next year as a separate public company and focus more on compiling, analyzing, and publishing commercial and financial information.

Founded in 1888, McGraw-Hill has more than 20,000 employees worldwide, most of them in the United States, and serves customers worldwide. Core subsidiaries, expected to generate $4 billion of revenue this year, include credit rating agency Standard & Poor's, consumer survey conductor J.D. Power & Associates, petroleum industry news source Platts, and industry publication Aviation Week.

The company's education business is expected to ring up $2.4 billion of revenue in 2011. McGraw-Hill publishes textbooks and digital learning tools for students at all levels of learning, from kindergarten to college and professional certification courses.

McGraw-Hill said recently that its management "is developing detailed separation plans, which will be subject to approval by the board of directors. The company expects to complete the transaction by the end of 2012 through a tax-free spin-off of the education business to McGraw-Hill shareholders."

Cries for better financial performance by McGraw-Hill have come from two activist shareholders of the company, Jana Partners LLC in New York City and the Ontario Teachers Pension Plan Board in Canada.

Jana Partners said in a filing last month with the U.S. Securities and Exchange Commission that "McGraw-Hill has consistently underperformed its potential and traded at a sizeable discount to its intrinsic value, primarily due to operational challenges, capital inefficiencies and the structural complexity caused by its conglomerate structure."

Credit concerns

Credit rating agency Fitch reports that the pending spinoff of its education business raises concern about the future financial structure of the core business of McGraw-Hill, partly because the company also has decided to accelerate planned stock repurchases. Fitch analysts Mike Simonton and Rolando Larrondo lowered McGraw-Hill's issuer default rating to A- from A and determined that the outlook for further rating changes was negative.

But Wall Street is generally positive about McGraw-Hill's stock. Most analysts following the company in early September recommended buying or at least holding the stock.

McGraw-Hill earned $340 million of net income in the first half of the year, about 7 percent more than in the same period last year. Revenue in the six-month period rose about 13 percent, year over year, to $2.86 billion.

McGraw-Hill Companies (MHP) is an information hunter-gatherer that plans to scan fewer fields. The New York City company is set to spin off its education business next year as a separate public company and focus more on compiling, analyzing, and publishing commercial and...